Even though the company cut advertising costs during the quarter, rising raw material costs limited profit growth. Due to higher prices for tea and crude palm oil, raw material costs increased by 5% year-on-year and accounted for 49.6% of revenue. The company’s advertising expenses decreased 15% year over year and accounted for 9.5% of net sales.
The home care business segment, the largest of all segments, recorded the highest revenue growth of 8%. In contrast, the personal care sector recorded the largest decline of 5% due to the pricing measures taken during the year. All segments recorded double-digit profit margins. The company will now implement price increases that are calibrated to pass on inflation in input costs.
The board of directors of HUL has decided to separate the ice cream division in line with the parent company’s decision to separate the ice cream business. According to the company, the high-growth, low-margin ice cream segment contributes to 3% of HUL’s sales and has significant investments and synergies with cold chain infrastructure and other HUL segments. A different operating model involving a unique channel environment is required. portfolio.
Ice cream sales volume for the quarter was flat year over year. Growth in urban markets is slowing, but the outlook is not good in the short term for the company, which derives two-thirds of its revenue from urban markets. Recovery in local markets remains gradual.
HUL stock has gained a modest 7%, significantly underperforming the benchmark index over the past year. Weak consumer demand amid a cost inflation environment doesn’t bode well for stocks in the near term. While exiting a non-core business is good news, losing 3% of the business (the ice cream division) will further inflate the stock price. As of now, HUL shareholders will have to contend with dividend income as the company has declared a total dividend (interim + special) of ₹29 per share.
